It is a fact that the legal cannabis industry has tremendous potential to generate significant tax revenue for states and municipalities in the years ahead. Earlier this year, for example, the California Department of Tax and Fee Administration reported that, from the day legal cannabis retail sales began in January 2018 until January 2020, the state had already collected more than $1 billion in taxes. And those are only state-level taxes.

Taxes are also imposed at the local level, and setting those rates requires a delicate balance. The tax must be high enough to provide legitimate benefit and positively impact a city or state’s budget. But, if the rate is too high, cannabis companies will look to tax-friendlier places to do business. Worse, scaring away legal cannabis businesses can result in the return of an illicit, unregulated market, negating a primary purpose of legalization.

One California city, Costa Mesa in Orange County,…

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